Department of Energy lays out plans for stimulus spending

At a conference dedicated to the funding of renewable energy efforts, the DOE' …

One of Steve Chu's first actions when he took over the Department of Energy was to appoint Matt Rogers as a senior advisor. Rogers had previously worked on energy issues at a consulting firm and brought a wealth of industry experience to the DOE. Yesterday, at a meeting hosted by the American Council on Renewable Energy, Rogers provided a high-level view of the DOE's current position on energy policy and the Department's view of where it stands in terms of fostering a transition to renewable energy in the middle of a financial crisis. The talk provided an interesting glimpse into how a government agency viewed its newly enhanced role as a director of investments.

Rogers had the unenviable task of selling Obama administration policy to a room filled with Wall Street investment bankers—precisely those individuals who have received bonuses that have been criticized by Obama himself. He also acknowledged that there are large segments of the public that believe the US government is incapable of doing any large-scale development work well. As a result, there appeared to be a degree of cheerleading in his talk, such as when he claimed, "energy and environmental policy are aligned for perhaps the first time ever, and has the resources for the first time ever."

In any event, Rogers argued that the financial crisis and ensuing stimulus has created what those running the DOE view as a temporary aberration in its role. Long term, the DOE sees its role as being focused on assisting in the development of advanced technologies and ensuring that they get commercialized when appropriate. "The market doesn't underwrite advanced technologies well, and it doesn't underwrite efficiency as well as it should," Rogers said

But the freezing up of capital markets has made basic improvements to the nation's energy supply and distribution infrastructure problematic, and the stimulus was in part meant to correct for that, so the goal now is to try to make sure that the money is well spent before returning to the traditional focus on emerging technology.

Rogers said that, ultimately, there's a lot of money to spend. The DOE got a bit over $30 billion for grant and contract spending, but cost-sharing requirements will ensure that this leads to about $50 billion in energy spending. There was also $6 billion in new loan guarantees, and a decision to use up all of the $80 billion previously allocated. Since these only guarantee a fraction of the total loan value, they should ultimately lead to about $200 billion in loans, meaning the DOE will be responsible for about $250 billion in spending.

Rogers took pains to separate the DOE spending from some other recent government interventions in the markets. "This is not a TARP program—we're not bailing out programs that aren't economic," he said, while noting that "we do intend to get paid back," and that they are trying to make sure the taxpayers get a decent return on their investment. This should also ensure that equity holders go in for the long term on these projects as well, which will be essential for the loan guarantees to have their amplifying effect.

That said, the DOE is trying to walk a bit of a tightrope when it comes to the stimulus: it needs to get the money out the door quickly, but not so quickly that it sets off a boom-and-bust pattern of cyclical funding, which has scared private equity away from energy investments in the past. Rogers suggested that the Department is still suffering some unfortunate lingering effects from some bad loan decisions made in the 1970s. As a result, he said that the DOE has chosen to create a rolling review system that will ensure a steady stream of allocations—we should expect a steady stream of hundreds of millions of dollars allocated every week, rather than individual, multibillion dollar decisions.

To get there, the Department has about 250 expert reviewers working through applications every day, and expect to have had over 2,000 go through Washington before the summer is out. That doesn't mean the process will go smoothly, but Rogers said that the increased transparency was helping. "It's all up on the website, so you find out you made a mistake within about two hours," Rogers said in describing how they quickly learned that one efficiency program neglected to allocate any money to the home state of Vice President Biden. The rolling schedule also means that individual holdups can seriously distort the schedule—Rogers said, "We need to repair the ceiling tiles in the Secretary's office about once a week" after Chu blows his top with impatience.

When it comes to the actual focus of the loans, it appears that the emphasis will be on infrastructure that will have a long-term impact, as Rogers said, "we want to build and put in place a foundation and architecture that can persist" and "it's about doing something for 20, 30 years." The specific examples he gave were loans intended to help auto makers transition production plants for the manufacturing of more efficient vehicles and the fostering of a domestic battery manufacturing capacity for hybrids and all electric vehicles.

Overall, it's easy to find someone in the business community that's willing to lay out this sort of strategic vision, with general and specific goals and the plans to meet them, but relatively rare to hear the same thing from someone at a sprawling government agency like the Department of Energy, even though the agency has been forced by circumstances into acting a bit like a private equity firm. Typically, the DOE communicates with the public via a stream of press releases that focus on the minutia of its funding decisions, which can obscure the larger picture; in this case, given the large sums of money entrusted with the new DOE administration, it was somewhat reassuring to find out a larger picture existed at all.